Pensions cash shortfall rule shelved

THE growing pensions crisis has forced the shelving of a controversial accounting rule said to be threatening final-salary schemes. The rule, FRS17, forces companies to report year-by-year the value of their pension funds, making clearer any cash shortfalls they must make up.

But firms argue that exposing liabilities as a 'snapshot' affects their ability to run their businesses, get credit and could cost jobs. They say it neither allows them to smooth out stock market volatility in their accounts nor reflects the true long-term ability of a scheme to meet payments.

The Accounting Standards Board had been phasing in FRS17 gradually, with firms having to have fully adopted it by the end of the year. But it now wants to delay the deadline until 2005.

From December, companies will still have to report their FRS17 liabilities as a footnote, but will no longer have to provide full accounts of their pension schemes. The ASB wants to allow time for the International Accounting Board to draw up a common set of standards which it will adopt. It denied bowing to critics of FRS17, saying it still believed the standard was right 'for the future and pension transparency'.

FRS17 has already indicated that companies including Marks & Spencer and HSBC have an apparent cash shortfall in their pension funds of up to £10bn. As a result, many companies have either closed final-salary schemes to new staff or closed them down.

Many staff have traditionally been guaranteed a retirement income based on their final salary. In its place firms are introducing riskier schemes that rely on stock market performance. The FRS17 was seen as the final straw for schemes already facing added costs because of longer life expectancy and falling stock market returns.

Gordon Brown had effectively signalled the beginning of the end of traditional company pensions when he removed pension funds' dividend tax credits in 1997 - thereby grabbing £5bn.

The National Association of Pension Funds welcomed the delay to the full implementation of FRS17. Chief executive Christine Farnish said: 'It has already begun to damage occupational pensions.' Figures from the association show three-quarters of companies with final-salary schemes find them less attractive in the new system.

Susan Anderson of the CBI, said: 'For many firms at the margins FRS17 was the last straw which forced them to close final-salary schemes. That tension has now been eased.'

Ministers were yesterday embroiled in a fresh row with their own officials over the pensions blunder. The head of the Office of National Statistics denied he had apologised for the error which led the Government to overestimate pension savings by up to £35bn. Work and Pensions Secretary Andrew Smith had to apologise to the Commons for giving misleading figures.

Officials tried to blame ONS experts, and claimed chief statistician Len Cook had 'apologised' to Smith. But the ONS insisted it had not, and would not, apologise, saying the figures had been wrongly interpreted by ministers.